When the accounting scandal at

Freddie Mac

began making headlines earlier this summer, the mortgage finance firm's two biggest investors ran for the hills.

The most recent regulatory filings reveal that

Fidelity

, the nation's biggest mutual fund company, sold 26.3 million shares of Freddie in the second quarter, roughly half of its Freddie holdings. Fidelity began the quarter as the largest investor in the government-sponsored company, but has dropped to second place, according to institutional investor information compiled by the

Nasdaq Stock Market

Web site.

It was during the second quarter that Freddie revealed it had pushed out three top executives because of problems with its accounting practices. The first two weeks of June saw some of the most active trading in Freddie shares in years.

Abandon Ship

But Fidelity wasn't the only top-10 institutional holder to bail during the accounting scandal at the nation's second-biggest mortgage buyer. Other big sellers in the most recent quarter included French financial services conglomerate

AXA

(AXA)

,

Oppenheimer Funds

and investment management firm

Massachusetts Financial Services

.

AXA sold so many shares in the quarter -- 20.8 million, or 64% of its holdings -- that it no longer ranks as one of Freddie's top 10 investors. The French firm now ranks 12th, falling from second place in the previous quarter.

By contrast, Fidelity and AXA still rank as the largest and third-largest owners of

Fannie Mae

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, a close sibling of Freddie and the nation's largest mortgage buyer.

With all of the selling by Fidelity and AXA,

Barclays Bank

leapfrogged from third place to become Freddie's largest shareholder, even though the bank lightened its portfolio of about 1.2 million shares. (Barclays might be limited in its ability to sell Freddie shares because much of its money is tied up in index funds.)

Officials at Fidelity and AXA both declined to comment on the reasons their funds bolted out of Freddie. But it's a good bet that much of the selling occurred after the accounting scandal began making headlines, and after regulators and federal prosecutors opened investigations into the matter.

Fast and Furious

Indeed, on the day of the management shake-up at Freddie, the stock dropped 15%, to $50 a share, with some 61 million shares changing hands -- eight times the normal daily trading volume.

It's not known whether Fidelity, AXA, or the other big institutions that sold Freddie shares later bought shares at lower levels. But Freddie's stock has remained stuck in the mud since the accounting scandal broke, and daily trading activity has remained a tad below average.

That may be an indication that many institutional investors, who own 80% of the finance firm's outstanding shares, remain ambivalent about Freddie's prospects. In fact, two days after regulators forced Freddie's board to oust Chief Executive Gregory Parseghian because of his role in the accounting scandal, Freddie's stock is again treading water at around $51 a share.

There's a good reason for investors to sit tight, because Freddie's problems aren't over.

Next month the company will report the results of its much-anticipated restatement, which is intended to rectify its prior accounting errors. The company has said the restatement could add anywhere from $1.5 billion to $4.5 billion to its past earnings, but also reduce future earnings.

Shenanigans

Most of the accounting games at Freddie stemmed from an attempt by management to limit the impact of its large derivatives portfolio on its earnings. Rather than record large gains on those derivatives transactions in a short time frame, Freddie's managers tried to spread out those revenue gains over several years.

Still, some institutions, including

Goldman Sachs

(GS) - Get Report

,

Pacific Financial Research

and

Putnam Investments

, were buying Freddie shares even as its troubles were mounting.

Far and away the most bullish institutional investor during the last quarter was Gordy Crawford's mammoth

Capital Research & Management

investment company. The fund added 14.5 million shares, a 272% increase in its holdings.

It would appear that Crawford, who invests heavily in media companies, is making a big bet in Freddie's ability to shake off all of the negative headlines this summer.